Critical Juncture

The credit markets are in complete disarray. The money and bond markets which are normally very organized around the inexorable mathematics of yield calculations are offering all kinds of illogical prices, when there are any prices. The stock market seems to be frozen in a range like a deer in the headlights ready to go one way or the other but unable to choose a direction. The price of actual physical stuff ( gold, crude oil, wheat etc.) is levitating as money flees the dollar but resists going to other froms of paper. Oh, woe is me! What to do?
Well turning to golf terminology, break out a sleeve off golf balls and tee one up. (Remember a sleeve of golf balls is 3 balls and I said tee one up) I don't have anyway of knowing if this is a bottom, the panic may worsen and the economy collapse. But the level of pessimism in the media and the attention on page one to various problems in arcane areas of the market like structured finance and municipal bonds tells me for sure this is not a top.
Here are some interesting comments from respected sources:

Stock markets are a forward looking mechanism and will turn positive long before the economic statistics improve. The quotes and table below are from the Puru Saxena newsletter:

Turning back to the current situation in the US, opinion is divided as to whether the US will slip into recession, thereby triggering a global bear-market. It is my view that when adjusted for true inflation, the world’s largest economy is already in recession. However, I doubt very much if the official statisticians working in Washington will ever admit to a recession in this election year. So, I would have to conclude that at least in the eyes of the mainstream media, the US will avoid a recession not least due to all the help being provided by the officials.

It is interesting to note that during previous recessions in American history, government-sponsored stimulus packages arrived around the time when the business cycle was bottoming out and a recovery was already underway. Here are the dates when anti-recession packages were announced followed by
the dates when the recessions ended:

October 1949 – recession ended in October 1949

April and July 1958 – recession ended in April1958

May 1961 and September 1962 – recession ended in February 1961

August 1971 – recession ended in November 1970

March 1975 – recession ended in March 1975

January and March 1983 – recession ended in November 1982

December 1991 and April 1993 – recession ended in March 1991

June 2001 – recession ended in November 2001

So, given the fact that Mr. Bush has already unveiled his stimulus package and the Federal Reserve is busy recapitalising the banking system via a steep yield-curve, I am willing to bet that after some more weeks of choppy trading and base formation, the global stock markets should trend higher. If this is the case, my preferred investment themes (natural resources, BRIC economies, Asian infrastructure and the US technology sector) should continue to outperform the other sectors and markets.

and from The Investment Scientist via A Dash Of Insight both very interesting sites:

Periods of 200+ bp rate cuts	S&P 500 1 year return	Small Value 1 year return	S&P 500 3 year return	Small Value 3 year return
Oct 1957 - Mar 1958	32%	64%	55%	106%
Apr 1960 - Jan 1961	11%	23%	25%	47%
Apr 1970 - Nov 1970	8%	12%	10%	-1%
Jul 1974 - Oct 1974	21%	34%	25%	149%
Apr 1980 - May 1980	-19%	46%	46%	175%
Jan 1981 - Feb 1981	-14%	10%	20%	131%
Jun 1981 - Sep 1981	4%	25%	143%	141%
Apr 1982 - Jul 1982	52%	96%	78%	174%
Aug 1984 - Nov 1984	24%	31%	41%	39%
Sep 1990 - Mar 1991	8%	29%	19%	89%
Sep 2000 - May 2001	-15%	19%	-11%	57%
Average	13.5%	35.4%	31.8%	100.5%

So I am doing some small buying of equities and I am probably early, I often am, but the pessimism everywhere gives me comfort.

Chart above courtesy of Investors Intelligence and Fullermoney